“Glory to the Lord that Europe has created euros” / the single currency, a refuge for investors in front of the US turbulence

The euro became the unexpected winner of the recent turbulence on the financial markets caused by the commercial tariffs imposed by President Donald Trump, reaching a maximum of the last three years towards the dollar, according to Reuters, quoted news.ro.

The growth of the euro is fueled by the increasing fears of global investors in terms of American assets, causing them to sell their assets and repatriate their capital. In Europe, these flows support the appreciation of the single currency.

“Capital flows have become much higher than commercial. If the US government causes shares and reduces the profitability of American companies, we need to wonder if the rest of the world wants to place their money in American bonds or shares,” said Kit Jockes, chief foreign currency strateg.

The euro was over 5% on the dollar from April 1, the day before Trump introduces a 10% basic customs rates for all 20% additional economies and taxes for the European Union.

The US president's decision to suspend the application of these tariffs for 90 days has caused the highest daily growth of 2015 since 2015.

On Friday, the euro exceeded the threshold of $ 1.14, supported by the growth triggered a few weeks ago, after Germany announced a massive expense plan.

Although a strong euro is regarded by some officials as a sign of consolidation of the currency status as a global player, analysts warn that the appreciation of the single currency can affect the European exporters, who have so far benefited by a weaker euros during periods of global economic.

The euro appreciation is generalized: the currency has reached a maximum of 17 months compared to the pound and is at the highest levels in the last 11 years compared to the Chinese Yuan, reaching a record and in relation to a weighted currency basket.

Currencies considered safe such as the Japanese yen and the Swiss franc were also appreciated. However, unlike these coins, the euro tends to depreciate in periods of financial stress, which makes this evolution even more surprising.

At the beginning of the year, the euro was traded around $ 1.03, and many analysts were anticipating a decrease below the 1 -dollar threshold if customs rates were imposed. These expectations are now significantly reassessed.

Massive repatriation of capital

There is also a large volume of American assets that can be sold: foreign assets of US assets increased from $ 13 trillion a decade to 62 trillion in 2024, in the context of investors were attracted by the higher performances of American actions, bonds and real estate.

The euro area has most of these foreign assets denominated in dollars, according to data provided by Adam Pickett, the head of the global macro strategy.

“This tendency can continue as long as it lasts the reorientation of capital,” Pickett said, comparing the current situation with that of 2022, when the European shares exceeded those in the S&P 500 index for about six months, and the euro appreciated with about 10%.

However, a long -term structural change in holding American assets is harder to anticipate.

“Such a reallocation cannot be done in a week,” said Lefteris Farmikis, foreign currency strateg.

Farmikis explained that the traders re -evaluate the initial hypothesis that the euro will be among the most affected by rates, which also explains the extent of the current rally.

Europe, seemingly safer shelter

The movements in the markets of bonds, the difference in yield between German and American securities has been widened by almost 50 basic points this week – suggests an increase in Nervosity about US debt.

Politician François Villeroy de Galhau, a member of the Council of Governors of the European Central Bank, said Thursday that Trump's policies have eroded confidence in the dollar.

“Thank God that Europe has created Euro 25 years ago,” he said.

The euro appreciation could continue.

“A rate of $ 1.25 for the euro is a real possibility,” said Vasileios Gkionakis, chief economist at Aviva Investors, invoking both the flows of refuge and the expense plan announced by Germany.

This evolution has multiple implications for Europe. George Sarevalos, the head of the FX strategy at Deutsche Bank, said that the increased demand for debts in the euro could facilitate additional expenses from European governments. At the same time, a stronger euro could allow the European Central Bank to maintain low interest, even if the rates will feed inflation.

But a strong euro also has negative effects.

“Normally, when the global economic cycle is weak, the euro depreciates, which works as a safety valve for the European economy. Now this mechanism no longer works, and this could generate an additional risk for European actions,” said Mathieu Savary, chief strategist for Europe at BCA Research.